10/25/2009

Health insurance industry profits are actually pretty low

Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry. In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would "keep insurance companies honest," says President Barack Obama. . . . .

2 Comments:

Thanks, Dr. Lott. My wife works in the health care industry running clinics that cater to mentally- and physically-ill children. In the last few years I recalling seeing a comprehensive list of profits by industry group and the clear winner was the pharmaceutical industry, and by a wide margin. (It may have been in Forbes magazine.) Health care was modest, and lumped in with a number of others as you've pointed out. It is not the hospitals and direct providers that are not the problem, so when the press says "health care" people don't get an accurate story.

Hi Dr. Lott, actually my dad works for a health insurance company and he makes a LOT of money, so it's not bad for us at all. The percent profits may not sound so high, but if you have a upper level job with the industry, you can make crazy money.